ANALYSTS RATE GALAXY NEUTRAL

2014/11/13

From：Macau Business Daily

Analysts at Credit Suisse are maintaining their neutral rating for Galaxy Entertainment Group, with an unchanged target price of HK$50. This means that the stock’s total return is expected to be in line with the relevant benchmark over the next 12 months.
Over the past three years, the brokerage firm also twice rated Galaxy neutral – October 16, 2013 and September 17, 2014. On both occasions, the closing price was an average of 13.6 percent lower than the target price at an average HK$52.5.
“[Galaxy] management’s tone remains optimistic about Macau’s medium to long-term outlook,” the analysts wrote in their latest note to clients. “We reiterate our neutral rating on Galaxy with an unchanged target price of HK$50.”
Galaxy posted a 6 percent revenue increase to HK$17.3 billion in the three months ended September 30 over that of the same period a year ago.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 1 percent to HK$3.3 billion for the company, while that of Galaxy Macau alone increased by 4 percent to HK$2.4 billion. And in the 12 months to the end of September, adjusted EBITDA rose 22 percent to HK$14.1 billion.
“In the near term, efforts should continue to focus on table efficiency,” Credit Suisse analysts say. “Despite its strength in the VIP business, Galaxy also faces similar challenges in the mass market like its competitors, in our view.”
The company’s overall mass market revenue increased 12 percent to HK$4.8 billion year-on-year. But for the month of October alone, this figure dropped by 13 percent from that of a year ago. “With [a] weaker mass market trend and [the] impact of smoking ban continuing to linger, we believe the share price performance of Galaxy and the [Macau] gaming sector may be capped in the near term,” analysts added.

On time, on budget

The closing of four VIP junket rooms during the third quarter of the year at the company’s StarWorld casino represented 15 percent of VIP capacity. “Galaxy is in the process of re-allocating the tables for the more profitable segment,” analysts wrote, adding that “the closure of smaller junket rooms highlights the on-going junket consolidation in this different environment.”
“We remain very optimistic about Macau’s medium to longer prospects and [are] excited that Galaxy Macau Phase 2 is on schedule to complete on time and on budget by mid-2015,” Galaxy chairman Lui Che Woo said when announcing his company results on Tuesday.
The budget for Galaxy Macau Phase 2 is HK$19.6 billion and so far the company has spent HK$9 billion, of which HK$1.7 billion was spent in the third quarter of the year. In addition, the shopping mall for premises is already fully leased.
Also on schedule is the company’s redevelopment works of Grand Waldo, the conceptual plans for which are slated to be announced in January. “The emphasis will be family-friendly leisure and entertainment for the middle class supported by many local Macau businesses,” he added.
Site investigation works for Galaxy’s Cotai Phases 3 and 4 will “commence shortly” and the resort is expected to cost between HK$50 million and HK$60 million.
Analysts at Credit Suisse also added that the near-term industry outlook remains uncertain.

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